* Russian business posts record loss, Ukraine still suffers
* Hungarian, Bulgarian units highly profitable
* Outlook much better in CEE than in Russia/Ukraine
By Marton Dunai
BUDAPEST, May 15 (Reuters) - Hungary's OTP Bank beat analysts' expectations to turn a modest profit in the first quarter as lower risk costs and operating expenses offset falling revenues in its home market and crisis-torn Russia and Ukraine, the bank said on Friday.
OTP, one of Emerging Europe's largest independent lenders, posted a net profit of 1.9 billion forints ($7.07 million) in the first quarter versus 5.9 billion forints a year ago and 10.9 billion in the fourth quarter.
Analysts had expected OTP to post a quarterly loss of 3.6 billion forints, according to a poll by portfolio.hu, a business news website.
The bank reported its first-ever annual loss in 2014 due to an adverse market in Russia and Ukraine, where it has sizeable exposure, and refunds to borrowers mandated by the Hungarian government on past loans that the courts had deemed unfair.
OTP said it expected its 2015 results in Russia and Ukraine to be far worse than in its central European markets, where it saw an economic recovery in 2015.
"Diverging trends have remained in place between Central and Eastern Europe on one hand and Ukraine and Russia on the other," the bank said. "The difference was quite material already in 2014 and it is expected to continue through this year."
In Hungary, by far its biggest market, OTP saw government burdens, especially a hefty extra tax on banks, to ease and lending to grow as a conversion of foreign currency loans and client refunds were mostly finished by now.
The bank's Russian business posted a record loss in the quarter, losing 11.5 billion forints, while the Ukrainian loss moderated significantly, although it still stood at 10.2 billion forints.
The bank's core Hungarian business made 29.4 billion forints in profit, down 13 percent from a year ago, while its Bulgarian bank's profit was up by 56 percent to 17.6 billion forints.
Operating profit in the first quarter was 95.4 billion forints, down 12 percent year-on-year on the group level.
Net interest income fell 12 percent to 142.7 billion forints in the quarter, while the bank made 37.3 billion forints from fees, an 11 percent annual fall.
OTP's loan book shrank by 8 percent on an annualised basis while deposits grew by 11 percent.
The bank's solvency margin fell to 16.0 percent from 17.5 percent in the fourth quarter, compared with an 8 percent regulatory minimum.
Its non-performing loan rate dropped sharply to 18.4 percent from 19.3 percent partly on the loan refunds to clients and foreign currency loan conversions. The stock of non-performing loans fell 22 percent from a year ago in forint terms. ($1 = 268.7200 forints) (Reporting by Marton Dunai; Editing by Biju Dwarakanath)